Payday loans are banned strictly in the state of New York since they are found to be trapping consumers in on-going debt cycles. Since these collecting companies were collecting loans that were illegal in the first place, the state authorities took strong legal action against them. These five companies are not only banned from making any further collections in the state of New York but are also required to pay more than $300,000 in penalties and restitution.

One of the payday loan collecting companies that was banned allegedly made 8,550 negative credit reports for consumers to credit bureaus in an attempt to pressurize them to pay their loans as well as heavy interest. The company was required to reverse all these negative credit reports and was prohibited, along with all the other companies, from making any more collections for payday loans in New York. The state laws have also clearly specified that all other companies are prohibited to make any collections for payday loans in New York in the future.

Lawsuits against online payday lending companies were also filed by the state of New York including Western Sky (who has now stopped lending), WS Funding and Cash Call for charging interest rates on loans that were higher than the usury cap applicable in New York. Under the state laws, the non-bank lenders that are not licensed by the state can charge a maximum interest rate of 16%, while these payday lending companies typically charge an interest rate between 100% and 650% annually. These loans are usually collected on the next paycheck that the borrower receives so typically they have a time period of four weeks at most, which makes the exorbitant interest rates even more appalling.

The borrowers were also being urged to provide these companies with access to their bank accounts so that the payday lending firms can withdraw payments directly from their account on the next payday. Often, these companies would only deduct the interest fee, keeping the principal amount intact to roll it over and kept withdrawing payments from consumers’ bank accounts over several pay periods while the consumers thought their debt has been paid off already. These payday lenders are also accused of hurting the national economy by trapping individuals into deliberate debt traps and reducing their average household income.

While the state takes actions against the payday lending companies, it also promotes education among borrowers regarding payday loans, theirs consequences and the rights of consumers as borrowers. In states where payday lending is still legal, state-registered companies are the best option to borrow from. There is also many websites, middle men and affiliate companies like Landmark Cash that offer payday loans online. These websites match consumers with registered payday lenders who abide by the state lending laws. While the state tries to control the actions of these firms, the responsibility of making educated and wise decisions lies with the consumers themselves.

So the question now is will other states follow suit and begin to crack down on payday loans? How will this affect payday loan marketers that provide matching services and don’t directly fund the loans? These are questions that will most likely be played out and answered over the next several months.